The July goods deficit hit a record for the year at $119.59 billion, according to Thursday’s data from the U.S. Bureau of Economic Analysis (BEA). If oil and gas export values are removed, the goods gap with the world for July comes in at $128.55 billion.
At first glance, the large goods deficit might be explained away by higher commodity prices. However, the U.S. paid less for crude oil imports in July than June ($12 billion vs $13.79 billion), and even fertilizer import values fell ($1.1 billion vs $1.2 billion). Fertilizer exports did not do much to change the month-over-month dynamic of deficits there. Copper looks to be the only commodity outlier, with the U.S. exporting $1.2 billion worth of copper and importing $3.2 billion in July vs. a $1.8 billion copper spend in June.
So the real standout culprit looks to be the AI data centers yet again.
Capital goods, minus automotive, saw the biggest import push monthly at $140.26 billion compared to $125.86 billion in June. Capital goods imports are up $231.33 billion year-to-date versus last year. And in this corner of the import market, computers, computer accessories, and semiconductors all saw higher import spend while export values of those same goods remained relatively flat.
Consumer goods also saw an increase over last month, led by pharmaceutical imports valued at $15.96 billion, up over $1.3 billion from the $14.62 billion imported in June.
No other segment saw a huge bounce in imports from June, including big trade items like passenger cars and auto parts. Passenger cars ($15 billion) were up a tad (maybe $5 million), and auto parts ($11.3 billion) were down by around $350 million. Even agriculture imports were down on the month to $17.63 billion vs. $17.75 billion. The Trump administration is set to open the market to more beef imports so that could increase values and volumes in August, but we are not seeing any commodity spikes in agriculture leading to higher monthly deficits, at least. In fact, the U.S. spent $9.38 billion less on ag imports so far this year compared to the same period last year.
Mexico Gap Widens. Vietnam is China+1 Darling. Taiwan Deficit Tells AI Data Story.
No countries have benefited from China de-coupling and de-risking like Mexico and Vietnam. The goods deficit with China is falling, at around $17 billion this July just like last July. But year-to-date, the China deficit is $91.21 billion now compared to $128.82 billion in the same period in 2025.
Now look at Mexico and Vietnam.
The deficit with Taiwan really tells the AI data center and high tech economy story. Taiwan has long been the go-to source for semiconductors and its exports to the U.S. have ballooned since the AI trend began.
The July trade deficit with Taiwan rose by $5 billion to $20.66 billion.
South Korea comes in second when it comes to a trade gap that has AI written all over it.
Worth noting, the U.S.-Canada deficit is in slight decline – about $1 billion less to $28.19 billion YTD 2026. The U.S. and European Union seem to be figuring out the new trade arrangement following tariffs and a new deal this summer. The deficit with the EU went from $160.10 billion YTD 2025 to $53.96 billion, marking one of the biggest corrections in trade imbalances since Liberation Day tariffs launched in April 2025.
There has also been a meaningful correction in the trade deficit with Japan based on value. The goods deficit YTD 2025 was $40.23 billion. It now stands at $26.45 billion.
All told, the goods deficit for the January-July period, seasonally adjusted, is still lower than it was last year at this time – $661.82 billion. But, given the higher revisions to previous month goods deficits, if the U.S. continues with its now three months long trend of $100 billion-plus deficits, the U.S. will, once again, breach a $1 trillion goods deficit.
“Both the total deficit and the goods deficit year-to-date are smaller than they were last year and in 2024, and that’s in spite of the massive boom in imports for data centers,” said Jeff Ferry, CPA’s chief economist emeritus. “This is powerful evidence that tariffs are indeed reducing imports and the trade deficit.”
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
AI Data Centers and Pharma Imports Send July Deficit to $119.59 Billion, Highest All Year
The July goods deficit hit a record for the year at $119.59 billion, according to Thursday’s data from the U.S. Bureau of Economic Analysis (BEA). If oil and gas export values are removed, the goods gap with the world for July comes in at $128.55 billion.
At first glance, the large goods deficit might be explained away by higher commodity prices. However, the U.S. paid less for crude oil imports in July than June ($12 billion vs $13.79 billion), and even fertilizer import values fell ($1.1 billion vs $1.2 billion). Fertilizer exports did not do much to change the month-over-month dynamic of deficits there. Copper looks to be the only commodity outlier, with the U.S. exporting $1.2 billion worth of copper and importing $3.2 billion in July vs. a $1.8 billion copper spend in June.
So the real standout culprit looks to be the AI data centers yet again.
Capital goods, minus automotive, saw the biggest import push monthly at $140.26 billion compared to $125.86 billion in June. Capital goods imports are up $231.33 billion year-to-date versus last year. And in this corner of the import market, computers, computer accessories, and semiconductors all saw higher import spend while export values of those same goods remained relatively flat.
Consumer goods also saw an increase over last month, led by pharmaceutical imports valued at $15.96 billion, up over $1.3 billion from the $14.62 billion imported in June.
No other segment saw a huge bounce in imports from June, including big trade items like passenger cars and auto parts. Passenger cars ($15 billion) were up a tad (maybe $5 million), and auto parts ($11.3 billion) were down by around $350 million. Even agriculture imports were down on the month to $17.63 billion vs. $17.75 billion. The Trump administration is set to open the market to more beef imports so that could increase values and volumes in August, but we are not seeing any commodity spikes in agriculture leading to higher monthly deficits, at least. In fact, the U.S. spent $9.38 billion less on ag imports so far this year compared to the same period last year.
Mexico Gap Widens. Vietnam is China+1 Darling. Taiwan Deficit Tells AI Data Story.
No countries have benefited from China de-coupling and de-risking like Mexico and Vietnam. The goods deficit with China is falling, at around $17 billion this July just like last July. But year-to-date, the China deficit is $91.21 billion now compared to $128.82 billion in the same period in 2025.
Now look at Mexico and Vietnam.
The deficit with Taiwan really tells the AI data center and high tech economy story. Taiwan has long been the go-to source for semiconductors and its exports to the U.S. have ballooned since the AI trend began.
The July trade deficit with Taiwan rose by $5 billion to $20.66 billion.
South Korea comes in second when it comes to a trade gap that has AI written all over it.
Worth noting, the U.S.-Canada deficit is in slight decline – about $1 billion less to $28.19 billion YTD 2026. The U.S. and European Union seem to be figuring out the new trade arrangement following tariffs and a new deal this summer. The deficit with the EU went from $160.10 billion YTD 2025 to $53.96 billion, marking one of the biggest corrections in trade imbalances since Liberation Day tariffs launched in April 2025.
There has also been a meaningful correction in the trade deficit with Japan based on value. The goods deficit YTD 2025 was $40.23 billion. It now stands at $26.45 billion.
All told, the goods deficit for the January-July period, seasonally adjusted, is still lower than it was last year at this time – $661.82 billion. But, given the higher revisions to previous month goods deficits, if the U.S. continues with its now three months long trend of $100 billion-plus deficits, the U.S. will, once again, breach a $1 trillion goods deficit.
“Both the total deficit and the goods deficit year-to-date are smaller than they were last year and in 2024, and that’s in spite of the massive boom in imports for data centers,” said Jeff Ferry, CPA’s chief economist emeritus. “This is powerful evidence that tariffs are indeed reducing imports and the trade deficit.”
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
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